Terraform Labs CEO Do Kwon acknowledged that a drop in the price of bitcoin would be “negative” for the stability of the UST stablecoin, but he expects bitcoin to rise.
Terraform Labs is the entity behind the Terra (LUNA) blockchain platform that plans to buy a total of $3 billion in bitcoin as a reserve for the UST stablecoin.
Kwon made the comments in an interview with the Unchained podcast on March 29. Host Laura Shin asked Kwon what the short-term implications of owning so much BTC are for the stability of UST.
Kwon said that “the worst case would be if we were buying bitcoin and six months later there was a crash, and this would correlate with a massive drop in demand for UST,” which would be, as he modestly put it, “negative.” However, this script keeps him awake at night:
“I’m kind of betting that a long-term scenario of a rise in Bitcoin and strong enough reserves to withstand a drop in demand for UST is the more likely scenario.”
Kwon was buying bitcoin (BTC) to hold in Terra’s treasury as 40% collateral for the UST stablecoin. Terra has purchased 30,727.9 BTC so far and most recently purchased 2,943 BTC on March 29th. This makes Terra the third largest holder of BTC with a single wallet.
YouTuber danku_r told his 54,000 followers in a March 30 tweet that adding BTC to Terra’s treasury would help mitigate the impact of the sudden drop in demand for UST. He said Terra’s move would help prevent a “death spiral due to market uncertainty” by helping the Treasury “swallow the UST supply cut.”
One of Kwon’s stated goals for the Treasury, known as the Luna Foundation Guard (LFG), is to make Terra “the largest single-wallet holder of BTC.” To topple the current leader, MicroStrategy Michael Saylor, Kwon would need to accumulate more than 125,051 BTC, according to the Bitcon Bitcoin Treasuries tracking wallet.
According to @stablekwon, @terra_money is a layer 2 solution for BTC, where “Bitcoin should only be good at one thing – being an asset.” Do you think Terra will be the second layer for Bitcoin? Link to the series: https://t.co/T2nVfg7VyC pic.twitter.com/Thi9nVKUHv — Laura Shin (@laurashin) March 31, 2022
Later in an interview, Kwon lived up to his reputation as a provocateur by stating that Terra is a layer 2 solution for the Bitcoin network. He argued that with Terra, Bitcoin has a bridge that allows it to be used “in a variety of applications from DAO to NFT to DeFi.”
“And in terms of expressiveness, transactional capabilities, throughput, it can all happen on Terra.”
Related: ‘Hold my beer’ – Terra has already made $165M buying Bitcoin as BTC stash moves closer to Tesla
Kwon’s comment caught the attention of the crypto community. In a tweet, an anti-pro-synthesis Ethereum (ETH) developer responded by asking if all entities using BTC to secure a stable coin should be considered Tier 2 solutions. He said, “Even I don’t believe that Bitcoin standards have fallen to this extent.” .
The Tier 2 solution helps the Tier 1 blockchain scale its operations by moving many transactions to an alternate network to reduce congestion.
BTC is trading at $44,463, down 5.61% in the past 24 hours, according to the Cointelegraph Price Index.